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As we reach the midway point of 2013, it is important to reflect
on some of the most important developments — expected or not —
that have shaped the year. To get a comprehensive feel for the
year, we looked back at the conversations we’ve had so far with
Members and other deal professionals. We examined their varied
perspectives and opinions to pull together the 17 must-read
quotes below.

On the Deal Environment:

Strategics have been (somewhat) active:
“Strategics should have been more active this year. However,
after a few near-death experiences due to unfavorable financing
environments, most of these companies are focusing on building
more of a cushion in their balance sheets. They are intentionally
sitting on a lot of cash right now.” - Tom Courtney in
Industrials YTD 2013 Network
Activity Report

Dry powder not as important as it seems:
“There are much more important factors [than dry powder] that
predict a fund’s success and fundraising ability: delivering
cash-on-cash returns through exits, showing strong relative IRR
(supported by reasonable valuations of unrealized investments),
articulating clear investment theses for portfolio companies,
answering transparency concerns of LPs, maintaining a strong
bench and track record, etc.” — Mark Gaffin in On the Exaggeration of Dry
Powder

Valuations expected to rise:
“The next 12-18 months will almost certainly be a highly
favorable period for business exits. If this proves to be a
cyclical market top, the next favorable period for businesses
owners wishing to sell may not come around before the 2020s.
In 2020 today’s sixty six year old Baby Boomer will be
seventy-three and today’s fifty eight year old will be sixty five
and studying Medicare options.” John Slater in his guest post
Will 2013 See Record Valuations
for Middle Market Business Sales

Private equiteers moving to family
offices:
“Although it is still a relatively young trend, you are more
frequently hearing of private equity professionals leaving firms
to move to family offices. Family offices are [hiring] existing
private equity professionals to source opportunities, conduct
thorough due diligence, negotiate transactions, and work with the
acquired companies.” – Howard Romanow in Family Office Trends to Keep an
Eye On

Baby boomers looking for exit
opportunities:
“[The baby boomers] generally had far fewer children than their
parents, and the unavoidable outcome is succession and liquidity
challenges later in life. It is the solution to both succession
and liquidity that these owners are seeking. The trend is a very
promising one for many private equity groups, and even more, for
the baby boomers. As the baby boomers look to retire, many
private equity firms will be vying for those assets.” – Benjamin
Gerut in Will Private Equity Inherit Baby Boomer
Businesses?

JOBS Act likely to change investment
landscape:
“The JOBS Act will take a large step towards leveling the playing
field for capital investments between big companies and small
companies and between banks and non-bank lenders. Before the JOBS
Act, most of the time only big companies could afford the cost of
publicly offering their debt to investors and only banks and
SEC-registered entities could get large amounts of funding from
individuals. Post JOBS Act, anyone will be able to receive
funding from qualified individuals and small companies will be
able to use any means of solicitation that works best.” – Mark
Sunshine in his guest post The Upcoming Funding
Revolution

JOBS Act to also benefit international
investors:
“Advertising in US for foreign funds will be a fantastic way to
drive competition. As more funds — both domestically and
internationally — have greater ability to advertise, there will
be greater competition and, as a result, a better market.” – Nate
Suppaiah in Are LPs Peeking Over the BRIC
Wall?

On Staying Competitive:

The importance of having the right tools:
“15-20 years ago, whoever had the biggest network was the best
bank. Today, it is more about your tools than your existing
network — you can find relationships you never had before.” –
Brian Trauth in The Art of Building a Buyer List

How to brand yourself successfully:“To
market to this niche successfully, you need to understand who you
are selling to, why you are selling to them, and what’s in it for
them. Most businesses fail within the first three years, and
every entrepreneur has the scars to prove it. If you don’t
appreciate that sacrifice — if you only relate to his balance
sheet and income sheet — you won’t build interpersonal
relationships.” – David Mahmood in How and Why to Build a Strong
Brand

Understanding business owner sentiments:
“I really believe that most of these retiring entrepreneurs want
more than a simple check; they want a real transition with real
mentorship…they want succession. Operating partners at large caps
are often seen as less significant to overall investment
performance, but in the middle and certainly the lower-market,
they are truly the head of the spear.” – Benjamin Gerut in
Will Private Equity Inherit Baby
Boomer Businesses?

For strategics, customers can lead to some of the best
insights:
“Your customers are a great resource of information if your field
contacts do not have any information. While they might not have
as detailed knowledge, they can offer a worthwhile gauge.”
- Stenning Schueppert in Best Practices in Cultural Due Diligence

Private equity’s lingo:
“The lingo used in the space is so arcane and out of date that
investors have no context for the discussions. The failure to
establish a clear, effective communication system has been the
biggest sin private equity has committed.” – Bob Rice in Bob Rice on Private Equity’s
Jargon Problem

Precision helps you be a better
negotiator:
“If you can use precise numbers and back it up with data or
analysis, you are likely to be viewed as informed, knowledgeable,
and experienced. In short, a precise number is a simple, yet very
impactful way to convey you know what you are talking about.” –
Elizabeth Wiley in How Precision Makes You a Better
Negotiator

On Due Diligence:

Business can be a higher priority than legal and
compliance matters:
“Because they do not have the infrastructure and resources of
larger companies, they are understandably more focused on
building their business as opposed to legal and regulatory
compliance matters. This lack of infrastructure and lack of
compliance needs to be accounted for in diligence, and private
equity sponsors need to determine how to remedy post-closing.
Specifically, any resolution may give rise to added costs,
through initiatives and/or hires, and this could have a
meaningful impact on going forward EBITDA.” – Justin Levy in
Best Practices on Legal Due Diligence

Too much — or too little — turnover is a bad
thing:
“It is necessary to ask the company about its turnover rate,
where its employees move to, the last key employee to leave, etc.
If there is a noticeable turnover trend — all employees leaving
for the same company or 50% of management team leaving to start a
competitor, as examples — that should offer unique insight into
culture and the businesses. On the other hand, If a significant
number of employees have held the same position for too long,
they may fear change and be resistant to acquisition.” – Stenning
Schueppert in Best Practices in Cultural Due
Diligence

Tax diligence can save you cash in form of
credits:
“A proper review of the company’s tax position can allow you to
identify previously unrealized tax savings. The lowest hanging
fruit is usually the various tax credits: R&D credits, state
employment credits, and federal energy efficiency credits, etc.
There are so many credits out there that often the CPA of the
target company has not properly identified all the
opportunities.” – Nick Gruidl in Best Practices in Tax Due
Diligence

IT diligence is becoming more important:
“I know of a company whose website was the primary use of
technology, but IT due diligence identified half a million
dollars of savings. An entrenched piece of custom
technology for which they were being overcharged was easily
replaced with off the shelf software. Even at a non-tech company,
there are significant cost saving and risk avoidance
opportunities. It is getting harder and harder for investors to
ignore IT due diligence.” – Jim Hoffman in 3 Key IT Due Diligence Questions